Archive for category Daily Service
Advisors have been perplexed for years trying to find successful ways to maintain existing business when the current generation of clients dies. In fact, recent studies by TD Ameritrade and Pershing have shown that roughly 80% of individual retirement account (IRA) assets will be lost when a client passes away. Increasingly, investment advisors and custodians are being forced to look for alternative methods to retain IRA assets and accounts.
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Source: Investments & Wealth Monitor
Posted by: Steven Maimes, The Trust Advisor
Direct Marketing News article by Al Urbanski
Along with millions of others, no doubt, I fell victim to the countless 60 Minutes ads that ran during football coverage on Sunday showing Amazon’s Jeff Bezos opening a mystery door to an incredulous Charlie Rose, unveiling a new magical addendum to one-click shopping and free delivery.
These incessant 60 Minutes teasers usually turn out to be as disappointing as a sideshow barker’s, but I cover this stuff, so I thought it should check it out before switching over to the Giants-Redskins game.
The big moment came. Bezos opens the door. Rose shrieks like a boy on Christmas morn. What could it be? The camera cuts to what looks like an erector set creation with little toy copter blades attached. Jeff Bezos is bringing back erector sets for Christmas? No, Jeff Bezos is plotting to launch his own air force of drones that will carry packages directly from the warehouse to the collective doorstep of an eager consumer world. My mouth fell open. He’s insane, I thought.
Charlie was delighted, meanwhile, guffawing in awe of Bezos’s mad genius. I, however, looked at the slight, cue-ball-headed e-tailer as he reacted to Rose with a slightly spastic giggle and had a flashback to Donald Pleasence as the similarly strange and bald villain Ernst Blofeld in the James Bond film You Only Live Twice who secretly created a space program in hopes of leading the U.S. and the USSR to annihilate each other.
That would leave Blofeld in charge of the world, as apparently Bezos is now, since Rose had no questions to ask about Bezos’s bizarre plan to assault American air space with flying merchandise. Nor did Farhood Manjoo, who gushed in the Wall Street Journal about Bezos’s high-flying PR coup at the onset of the Christmas shopping season. Who knows? Bezos bought the Washington Post. Maybe he’s got his eyes on the Journal as well.
Here are a few questions I would have posed to Bezos:
What does the FAA think about this? The Federal Aviation Administration tends to look skeptically at flocks of tiny whirly-birds interfering with a busy schedule of commercial, passenger, and military aircraft. Even hero pilot Sully Sullenberger, who withstood an onslaught of Canadian Geese to bring his airliner down safely in the Hudson River, might meet his match in a squadron of flying toaster ovens.
Is it safe? How do you possibly control clouds of drones descending on suburbia? A few rogues are bound to lose their way and land on some old ladies and kindergartners on tricycles. Are you prepared, Jeff, to deal with the collateral damage?
What about the criminal element? How long after the first Amazon PrimeAir fleet takes wing do ne’er-do-wells begin disarming them with baseball bats and .22 rifles and running off with the merch? Hours would be my guess.
Since, as far as I know, Bezos the media magnate isn’t bidding to buy Direct Marketing News, I will boldly suggest that all that’s left for Jeff to do is find himself a decidedly ominous-looking sidekick to swiftly dispatch government inspectors and secret agents snooping around Amazon headquarters. Al Gore is sufficiently connected in the digital demi-monde, and equally quick with other-worldly whims. I see him lurching behind Bezos in a sky blue Nehru jacket with the big beard he sported during his stint as a college professor.
Posted by Steven Maimes, The Trust Advisor
WSJ Wealth Advisor article by Corrie Driebusch
Changes in Morgan Stanley’s basic pay formula for its financial advisers next year will oblige many of them to do more business–or risk getting paid a lower percentage of the revenue they generate.
Morgan Stanley Wealth Management, the largest brokerage by headcount with more than 16,500 advisers, told its ranks this week that it is increasing some key thresholds in its so-called pay grid by 10%. Advisers are paid on the basis of fees and commissions they bring in each year, with higher producers keeping a higher percentage of revenue. The pay grid sets thresholds for moving up from one production category to another.
For example, to qualify for a 41% payout, advisers must generate at least $440,000 in fees and commissions in 2014, compared with at least $400,000 this year. To move up to a 42% payout, they will need to produce at least $660,000 next year, compared with $600,000 this year.
The changes will put the most pressure on brokers who generate revenue only at or a little above a threshold that will rise. If they fail to meet the new higher level, they would slip to a lower-percentage payout.
No changes are being made to the highest thresholds–that is, for advisers who generate more than $2.5 million in revenue and receive a payout of at least 45%. But most advisers fall below that lofty level: According to Morgan Stanley’s third-quarter earnings report, average annualized revenue for its advisers was $848,000.
The changes are the first to be made in the grid in more than a decade. Advisers also can qualify for additional bonuses by meeting certain business goals, and those programs are revised fairly regularly.
For next year, Morgan Stanley is tweaking an incentive for advisers whose clients do more borrowing with the company. The maximum potential award for advisers in this program rises to $202,500 in 2014, compared with $127,500 this year. The award includes all forms of loans, from securities-based lending and tailored lending to new mortgages.
The brokerage also altered its award tied to asset growth. Previously, the award was available only to advisers who had any net new assets and were among the top 40%, based on revenue growth for the year, of those who had similar lengths of service. Now advisers who generate $300,000 more in revenue in 2014 than in the prior year will also qualify for the award.
The 2014 compensation plan also included changes in how smaller accounts are handled. While Morgan Stanley previously didn’t pay advisers for working with clients who held less than $100,000 at the firm, now those clients accounts will generate revenue for the adviser so long as those clients list enough of their outside assets at OneView, a Morgan Stanley investment-account-monitoring website.
Posted by Steven Maimes, The Trust Advisor
WSJ Wealth Advisor article by Alex Coppola
The doctor was a partner in a private medical practice that had enjoyed a good year. He was expecting a $50,000 bonus, but wasn’t happy about having to pay taxes on that money.
He brought his concerns to his adviser, Clint Gharib, founder of the Gharib Group in Atlanta. “This was a client in the top tax bracket,” explains Mr. Gharib, whose firm manages about $200 million for 300 family and corporate clients. “Between state and federal taxes, as much as $20,000 of that bonus was going straight to the government.”
The doctor had maxed out his 401(k) contributions for the year and earned too much to qualify for a tax-deductible IRA contribution. He wanted a vehicle that would significantly offset the tax hit, while giving him the opportunity to make a return on his money.
Mr. Gharib had already used alternative investments in the client’s portfolio, so he thought of another non-traditional strategy that could help the man achieve both of his goals: investing in oil wells.
Mr. Gharib has used oil and gas investments in his clients’ portfolios since 2008 and believed that such an investment could be a good fit for this client. He also knew that the strategy was uncommon, so he started by explaining exactly how the investment would work.
To invest in a land-based oil drilling project, the client could buy into an oil partnership. For a minimum investment–usually about $20,000–he would become a partner and receive a percentage of profits generated by those wells.
But in the first year of his investment, the client would also receive a deduction against his taxable income for money the partnership spent on intangible drilling costs, or IDC. These costs, which include expenses like labor and insurance, typically constitute about 85% of a project’s initial investment.
The client was intrigued, but before they went any further Mr. Gharib laid out the risks involved–primarily, that he could lose his principal if the wells didn’t produce oil. “There are plenty of horror stories about investors losing money because they didn’t do their homework on the general partner who organized the partnership,” says Mr. Gharib.
However, Mr. Gharib had spent three years researching a particular general partner and had placed other clients into well investments with the company. The general partner had decades of experience, a good track record, and was starting a new drilling project. Together, Mr. Gharib and his client reviewed the new project’s private placement memorandum, a document that includes a detailed budget outlining expected intangible drilling costs as well as estimates for the wells’ production.
Mr. Gharib also shared the information with the client’s accountant, who worked with the oil partnership’s accounting firm to review the procedures the client would need to follow to claim the IDC tax credit. With the client ready to invest, Mr. Gharib then gave the client’s $50,000 to the partnership.
In the first year, the partnership spent 88% of the money on IDC, which meant the client received a $44,000 deduction against his income taxes in 2011. By the second year, he had received about $7,692 in income from the wells’ yield, and can expect additional income for as long as the wells are still productive–typically 10-20 years, says Mr. Gharib.
As successful as this strategy was for this client, Mr. Gharib notes that it isn’t for everyone. Investors typically need at least $250,000 in net worth to qualify for an oil partnership. And because there’s no secondary market for the partnerships, they must also be comfortable holding illiquid assets.
“If you’re looking for an investment you can sell in three years, this isn’t it,” warns Mr. Gharib. “But for clients with the right assets and the right appetite, it can be a very useful and rewarding opportunity.”
Posted by Steven Maimes, The Trust Advisor
Almost all advisors want to grow their businesses, but many are not good at it, leaving things up to chance. Two best-selling authors share their expertise with advice on how to successfully increase sales.
Marketing professionals and agencies from all over the country come to Boston each year to attend INBOUND, a premier conference predicated on driving results by pulling in customers rather than pushing marketing on them. Two experts that spoke were Jill Konrath and Aaron Ross, each with interesting advice on how to drive sales.
Selling is easy as a SNAP
Konrath, bestselling author of SNAP Selling and Selling to Big Companies, gave an inside look at the chaotic work life of a corporate executive and explained why it is hard to successfully sell them. In knowing how many directions these executives get pulled, she shared her SNAP factors to be more effective.
- Simple – It pays to not be complex. “Being simple is judged by the receiver, not the sender,” advised Konrath.
- iNvalable – These executives will judge what type of resource you are. Let them know a change will be valuable. Do not be ordinary.
- Aligned – Do not sell yourself, or you might appear irrelevant.
- Priority – Executives cannot handle all projects at once, so convince them why your products or services are needed now, explaining why they are not just a nicety.
Konrath explained that humans can only handle so much. She sited a University of London study that showed that doing two things at once, actually makes us less smart. She said, if someone is constantly emailing and texting, it reduces IQ. For women IQ is lowered by 5 points. For men IQ is lowered by 15 points.
Konrath summed this up by saying, “So we have crazier people that are getting stupider.”
To further prove her point, she referenced a University of California study that showed that doing two things at once can drop cognitive capacity from that of a Harvard MBA to that of an 8 year old.
When reaching out to executives, Konrath noted that many organizations are not effective. She noted sharing material like the company history and locations is grossly irrelevant. To create alignment with marketing message, Konrath advised, “If you are not using the words of your customers, you are wasting your time.”
“The average person will evaluate an email in 2.7 seconds. People are protecting their time,” shared Konrath. “They don’t have time for a 20-page white paper.”
“Don’t think of yourself as a sales person,” said Konrath. If so, then one typically falls into the mode of the traditional sales model where individuals talk too much. Instead, she advised, “Think of yourself as a project manager.” Imagine what you are selling is a project with the executive, but the project just has not been signed yet.
To become a priority with executives, get alerts to changes in their environment.
Predictable sales revenue
Aaron Ross, best-selling author of Predictable Revenue: Turn Your Business Into A Sales Machine With The $100 Million Best Practices Of Salesforce.com, spoke about getting off the revenue roller coaster and creating sales growth that lasts.
“Throwing more hours in a work week, might be adding to those things that are not working,” said Ross.
He believes that early on, organizations can do a great job of organic growth through word of mouth, but outbound sales are needed to cross over the ‘hot coals’ where a company gets burned.
“Predicable revenue is like peace of mind revenue,” said Ross. He felt strongly about treating different lead types differently and referenced three in particular:
- Seeds. They can come from word of mouth and are closed more frequently with higher conversion rates.
- Nets. They can be gained by casting wide nets through inbound marketing. Sometimes the quantity of leads is higher, but the quality is lower.
- Spears. These are leads that are developed from specific outbound sales.
Prioritize sales activities. Ross said, “From the people that have closed, ask ‘Where have we seen the best customers come in, with the least struggle?’ This exercise can give an idea of what is the ideal client.
Ross believes a fatal mistake is making sales people prospect. “If you get leads, don’t send them to a sales person. Leads from webinars, words of mouth and SEO go only to the inbound team, like an account executive (or service team).
Sales development people should play the role of qualifiers. On the other end of the spectrum are customer service and account management which are more like farmers.
Although most in the industry do not like to think of themselves as sales people, most organizations want to grow. In other words, they are forced to have sales responsibilities, like it or not. Hope this article provides some helpful advice to be able to take selling to the next level.
Mike Byrnes is a national speaker and owner of Byrnes Consulting, LLC. His firm provides consulting services to help advisors become even more successful. Need help with business planning, marketing strategy, business development, client service and management effectiveness? Read more at ByrnesConsulting.com and follow @ByrnesConsultin.
© 2013 Byrnes Consulting, LLC. All rights reserved.
Spectrem’s Millionaire Corner article by Kent McDill
Investors disagree on whether wealth management services are appropriate for investors of their own wealth level.
The Spectrem’s Millionaire Corner Ezine “Defining Wealth Management’’ reveals that approximately 22 percent of investors agree with the statement “wealth management is for people richer than I am” and 12 percent strongly agree with that statement.
However, 33 percent either disagree or strongly disagree with the idea that wealth management is for investors richer than themselves.
As might be expected, net worth has a great deal to do with how this question was answered. Among investors with a net worth under $100,000, 38 percent strongly agreed and 24 percent agreed with the idea that wealth management is for richer people. Even 13 percent of investors with a net worth over $5 million fit into those two categories.
Among investors with a net worth of $5 million or more, 54 percent disagree or strongly disagree that wealth management is for “people richer than I am.”
Thirty-three percent of investors neither agreed nor disagreed with the statement.
Asked if “wealth management represents services appropriate for someone like myself”, 39 percent of investors agreed and 10 percent strongly agreed. Only 14 percent disagreed and only 4 percent strongly disagreed with the statement. A third of investors had no opinion on the statement.
There is a wide divide in which investors believe “wealth management” services are appropriate for themselves. While 65 percent of investors with a net worth over $5 million agree that “wealth management” services are appropriate for themselves (with 23 percent “strongly’’ agreeing), only 22 percent of investors with a net worth of $100,000 or less believe so. Fifty-three percent of investors with a net worth between $1 million and $5 million agree or strongly agree that “wealth management” services are appropriate for them.
Forty-five percent of investors with a net worth of $100,000 or less disagree that “wealth management” represents services appropriate to them.
Posted by Steven Maimes, The Trust Advisor
Investor’s Business Daily article by Morey Stettner
One smart decision can propel a financial adviser’s career. By taking bold steps to break away from the pack, from adopting a new marketing strategy to launching an ambitious nonprofit organization, wealth managers have shifted their business into overdrive.
Such moves are rarely easy or risk-free. But the benefits can outweigh the costs.
IBD recently asked financial professionals, “What’s the best thing you’ve done to develop your business?” Some instructive replies:
For Jim McCarthy, president and chief investment officer of Seascape Capital Management in Portsmouth, N.H., business started to take off after he began offering monthly seminars in the early 1990s. To attract affluent pre-retirees, he chose topics such as estate planning and managing Social Security benefits.
“You need a systematic process to bring in new clients on a regular basis,” McCarthy said. “In our seminars, 10 to 15 show up and we get two or three clients out of it.”
Relationships take time to blossom. Because most attendees do not become instant clients, McCarthy follows up diligently to seed his relationships with future clients.
Over time, he has reduced the number of seminars to five per year. He avoids scheduling them dring the summer and year-end holidays.
He fills the seats by inviting existing clients to bring a friend or by purchasing lists of names once or twice a year and then contacting those leads. In the seminars, he focuses on delivering educational content, not selling financial products to clients.
Referrals made easy
Almost every financial adviser asks for referrals. But few take it as seriously as Bob Siefert.
About four years ago, Siefert began tweaking how he conducted his annual client reviews. A principal at Modera Wealth Management in Boston, Siefert started asking for referrals as a formal agenda item in client meetings.
“We put the idea of soliciting referrals as one of the last bullet points in the agenda we gave to the client in the annual review,” he said. “Now we ask, ‘How are we doing?’ And we get feedback and referrals as part of the review process.”
At Legend Financial Advisors in Pittsburgh, the firm’s three certified financial planners contact all 210 of their clients every month. Their outreach began about five years ago.
“During the financial crisis, we saw how some of our peers hid from clients,” recalled Diane Pearson, the firm’s co-owner. “We weren’t going to hide.”
Thanks to their proactive client communication, which often consists of a call or email to discuss topics such as tax law changes or retirement planning, Pearson’s firm retains about 96% of its clients. It’s an enviable record in a highly competitive industry.
What’s your passion?
“The best thing I’ve done is ignore everybody who said, ‘That’s impossible,’” said Elliot Weissbluth, chief executive of HighTower Advisors, a Chicago-based financial services firm. In 2000, Weissbluth left his career as a practicing attorney to shift into finance. He has never regretted the decision.
“I knew a lot about client services and representing my clients’ interests,” Weissbluth said. “But after 5-1/2 years as a litigator, I lost the passion for it and I had an opportunity to change careers. To succeed in any business, you need unwavering passion that will last for years, that’ll get you through when people make dismissive statements like, ‘No one will do business with you’ or ‘That won’t work.’”
Financial advisers often give back to the community. Stacy Francis went a step further: She founded a nonprofit group, Savvy Ladies, a few months before starting her New York City financial advisory firm, Francis Financial, in 2002. She credits Savvy Ladies, which provides financial education to women, as a springboard for launching her business.
“Savvy Ladies has been wonderful in building our practice,” Francis said. “It lets people know we’re doing this for the right reasons. Our clients love that we’re making a difference and giving so much back to charity.”
Posted by Steven Maimes, The Trust Advisor
Next Generation Trust Services to Co-Present Webinar for Accredited Investors on Investing in Startup Companies on December 10
Presenters Will Share Information about FNEX Investment Portal and How to Include Alternative Assets in a Self-Directed Retirement Plan.
Next Generation Trust Services, an administrator of self-directed retirement plans, will co-present “The Alternative Market and Self-Directed Retirement Plans,” a free informational webinar about investing in startup companies on Tuesday, December 10, 2013 from 11:00 a.m. to 12:00 p.m.
Next Generation Trust Services, an administrator of self-directed retirement plans, will co-present “The Alternative Market and Self-Directed Retirement Plans,” a free informational webinar about investing in startup companies on Tuesday, December 10, 2013 from 11:00 a.m. to 12:00 p.m. Insights into equity funding through a self-directed retirement plan, as well as the criteria for qualifying as an accredited investor will be shared. To register for the webinar go to http://bit.ly/1cqL3f0; the webinar ID number is 138-827-827.
Jared Lopez, sales and marketing coordinator for Next Generation Trust Services, will discuss the types of non-publicly traded alternative assets allowed in self-directed retirement plans; presenting with Lopez will be Randy Mitterling of FNEX, an online transactional portal where early-stage companies seeking equity funding may list their investment opportunities for accredited investors. Mitterling will explain how FNEX works for those seeking to invest in early-stage businesses and provide an overview of investing in alternative assets. The general solicitation for funding by startups became possible with the implementation in September of Title II of the JOBS Act.
FNEX enables accredited investors to make direct investments into private companies, hedge funds, managed futures, and private placements—just some of the many nontraditional investments allowed through self-direction. With self-direction, the account holder makes all his or her own investment decisions from a broad array of traditional and nontraditional assets; the transactions are executed and all paperwork and reporting are handled by a neutral third-party administrator, such as Next Generation Trust Services.
“Equity funding has long been a part of the self-directed retirement portfolios of high-net-worth individuals,” said Jaime Raskulinecz, founder and CEO of Next Generation Trust Services. “In fact, during the 2012 presidential campaign it was revealed that Mitt Romney built much of his wealth with this strategy through his self-directed retirement accounts. Being able to do so through approved online portals such as FNEX now allows a wider audience of investors to participate in these investment opportunities.”
For more information about the alternative assets allowed in self-directed retirement plans or about the investing webinar, contact Next Generation Trust Services at (888) 858-8058 or Info (at) NextGenerationTrust.com.
About Next Generation Trust
Next Generation Trust Services (NGTS), headquartered in Roseland, New Jersey, is a professional third-party administrator of self-directed retirement plans. NGTS provides education, administrative support, and account maintenance to individuals interested in self-directing their retirement portfolios with a wide variety of investments that are not typically found in an IRA, such as real estate, precious metals, notes and mortgages, private placements, accounts receivables, limited partnerships, hedge funds, and much more. Next Generation Trust Services serves clients globally via its website, http://www.NextGenerationTrust.com.
Posted by Steven Maimes, The Trust Advisor
The Fiscal Times article by Eric Sherman
Did you hear what Bill Gates and Warren Buffett are doing with their estates when they die? Giving most of it away. And they’ve convinced many other billionaires to do the same thing through a movement called the Giving Pledge.
They want to do good for the world — and, as Buffett has famously said in the past, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.”
Buffett isn’t alone in his concern about the impact of wealth on kids. Nearly 60 percent of parents believe their children are not well prepared to handle a financial inheritance, according to a study by U.S. trust. Few heirs become debauched Jay Gatsbys, throwing nightly drunken parties in the Hamptons, or souls troubled by gambling or substance abuse. And yet, there’s a good reason for concern.
Experts say that much of family wealth is lost when it’s passed from the first to the second generation, and it’s nearly all wiped away by the third generation. Some of that may owe to most estates not being that large and the bulk of money going to purchasing a home or providing education. But often the reason is that heirs are unprepared to deal with sudden wealth.
“Older people today were once young themselves,” says psychologist and registered investment adviser Phil DeMuth. “They think back and realize they didn’t have a clue about money and how to handle it.” Youth is unlikely to be any more resilient to divorce, unexpected problems with creditors, bad investment plans — “all the things that can separate you from your money.”
The answer, according to experts, is a trust that can help preserve wealth and allow it to still grow while still providing a benefit to heirs. A trust is a legal mechanism to hold assets on behalf of beneficiaries and transfer the wealth in a specific manner over a pre-determined time.
Because the assets are technically owned by the trust until transferred to the beneficiary, the structure provides protection from more than just careless habits. A divorce cannot involve the trust because it is not property of the beneficiaries. Similarly, the money is beyond the reach of a debt collector.
A trustee or trustees—often family members–administer the plan, regularly reporting financial results to the beneficiaries, filing taxes, and retaining professional financial and legal help. “I think it makes a lot of sense to pick two trustees–one that would be [an administrative trustee] for the children and one that would be a fiduciary for the money and have them meet to discuss how to invest,” says Benjamin Brandt, a financial consultant in Bismark, ND. If you think the job would be too onerous for family members, you can appoint a professional trustee or institution to handle the job.
Balance control and benefit
The trick in creating a trust is to balance fund conservation with incentives for children to develop into fully developed adults. “What [our clients] don’t want is what some people call ‘trust fund kids’ that are not working and are just living off a trust and not being productive,” says Chris Kerckhoff, president of St. Louis-based Plancorp.
Depending on the particular circumstances of the family, there are different structures that might work. A traditional one provides income generated by the trust but splits transfer of the principle in three parts spread out over a 10- or 15-year period throughout the kids’ 20s and 30s. A basic rule of thumb is that principle is available for health, education, maintenance, and support, “but not for Johnny wants to go buy a Ferrari,” Kerckhoff says.
Occasionally, parents will want to reach from beyond the grave and micromanage their children’s lives. There may be good reasons. “I have a client whose son is a drug addict,” says Heidi Bitterman, an associate attorney at The Law Offices of Donald P. Schweitzer in Pasadena, Calif. “She pretty much knows that whatever money is doled out is going to drugs.” In that case, the trustee cannot disburse money unless the child can pass two drug tests.
However, there are legal limitations on the restrictions parents can place on their children. They cannot limit things like facial hair or piercings or require them to enter certain professions.
In cases when adult children have already comfortably established themselves financially, it’s more fiscally prudent to leave the money directly to grandchildren. Doing so can limit estate taxes and insure that more money remains in the family. For example, if each generation has $4 million to pass on separately, they’ll remain under the $5.25 million estate tax threshold. Be sure to discuss the impact that income taxes will have on both the trust and your heirs as well.
Communication is crucial. “Make sure that the family members understand why the generation that currently has the bulk of the wealth is making the decisions it is,” says Kerckhoff. Younger generations may or may not agree with the reasons, but it is important that they know what will happen in advance. It can make sense to have children attend trust meetings starting in their teens so they can learn more about how to intelligently manage money.
Finally, remember that you can change a trust and may need to over time. Assets have to be explicitly added and don’t automatically pass to the trust. A change in life circumstances may need modifications.
Posted by Steven Maimes, The Trust Advisor
NBC news story by John Phillips
Sign on window advertises a bitcoin ATM installed in a Waves Coffee House in Vancouver, British Columbia Oct. 28, 2013. The digital currency broke through the $1,000 barrier on Wednesday.
Bitcoin, the digital currency, broke above $1,000 for the first time on Wednesday, marking a rise of over 7,600 percent so far this year.
Many analysts and investors have labeled bitcoin’s unfettered rise a bubble, yet greater awareness of digital currencies and last week’s U.S. senate seal of approval, paved the way for fresh gains.
Bitcoin traded as high as $1,030 on the Mt. Gox exchange, up 7,661 percent year-to-date from its December 31 close of $13.27.
Digital currencies cleared a major hurdle when U.S. authorities signaled a willingness to accept them as legitimate payment alternatives at a November 18 U.S. Senate hearing on virtual currencies. The outcome allayed concerns that the government would take steps that could undercut mainstream adoption.
“What we’re seeing is governments publicly announce and show that they recognize bitcoin as a factor in the financial system and that they are considering how to regulate it – which is good for the currency,” Zennon Kapron, managing director of KapronAsiam, told CNBC.
Comments from Federal Reserve Chairman Ben Bernanke were also seen as supportive. In an open letter to senators before the Senate hearing Bernanke echoed comments from former Fed Vice Chairman Alan Blinder who spoke about digital currencies at a House of Representatives hearing in 1995.
“Vice Chairman Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system,” Bernanke wrote.
With much of the recent surge in bitcoin demand coming from China, the U.S. senate hearing outcome has raised expectations that Beijing may steer away from heavily regulating digital currencies.
“If either government were going to ban the currency outright, they would have made the decision now rather than later as it would really serve no purpose to delay beyond fueling speculation. So overly heavy-handed government regulation looks unlikely,” Zennon added.
The digital currency has risen around 30 percent since Nov. 19, one day after the Senate hearing.
Increased awareness also underlies bitcoin’s continued rise following a surge in mainstream media coverage and the preponderance of bitcoin-related events globally.
Web-based searches for the term ‘bitcoin,’ which was added to Oxford Dictionaries Online this year, have seen a sharp increase since September according to Google data. On the day of the Senate hearing on virtual currencies, ‘bitcoin’ was the most popular search term, Google Trends showed.
India will hold its first official bitcoin conference in mid-December. According to a report in the Economic Times, the event is expected to see participation from the Reserve Bank of India – India’s central bank – as well as State Bank of India – the country’s largest bank.
Billionaire entrepreneur Richard Branson said last Friday that his commercial space flight venture will accept bitcoin as payment.
A test of whether the digital currency is being accepted more broadly could come with the second annual ‘Bitcoin Black Friday’ one day after the Thanksgiving holiday. According to the official promotional website for the event, merchants selling everything from web hosting to organic beer will offer special deals to anyone paying in bitcoin.
Posted by Steven Maimes, The Trust Advisor